Multinationals in Taiwan anticipate more cross-Strait progress

Xinhua, February 20, 2011

However, German automaker Volkswagen AG is still weighing plans to build a factory on the island or to outsource production to local carmakers.

A Taiwan official in charge of industrial development quoted a local car manufacturer as saying that building a factory in Taiwan could boost Volkswagen' s market share in Greater China.

The official said that he hoped car exports from Taiwan to the mainland would be exempted from the tariff, arguing that the island is working to include the issue in future rounds of cross-Strait negotiations.

Wu said that the institutionalized mechanism for cross-Strait talks made the improvement of relations "predictable."

She said that many multinationals considered increasing investment in Taiwan though it was not necessarily related directly to the ECFA, but it was clear that the ECFA brought new opportunities to the island and greatly boosted Taiwan' s attractiveness for foreign direct investment and investor confidence.

"With the tariff benefits brought by the ECFA, Taiwan will be able to position itself more effectively as a strategic base for exporting to the mainland, making full use of the direct transport links already in place," Wu said.

She also cited Prof. Michael Porter of Harvard University, who said that smaller economies benefit more from free trade agreements since "it is gaining access to a larger market."

An online survey conducted by AmCham Taipei in November last year showed nearly 89 percent of company respondents said that the ECFA would bring net benefits to Taiwan.

The survey gathered views from 117 business leaders who were members of AmCham Taipei, a 60-year-old organization with more than 900 members representing some 500 companies, many of which have been stationed in Taiwan for more than three decades.

Meanwhile, Wu said that cross-Strait direct flights were "concrete progress" that benefits not only the two sides, but foreign travelers as well. Each week, 349 direct flights operate between the major cities across the Strait.

"Shanghai is a day trip," said Freddie Hoeglund, CEO of the ECCT that was present in Taiwan for more than two decades. He adds that people in Taiwan had to travel via Hong Kong to the mainland before, so direct flights had a "tremendous impact on business."

Benefits for investors

Hoeglund said the ECFA would definitely have a positive impact on European investors in Taiwan as "liberalization of trade will benefit investors" with the island' s business environment becoming considerably better.

"The ECFA is a beginning. It is a framework agreement and there is a lot more to be done to be extended in the right direction," Hoeglund said.

The EU is the largest foreign investors in Taiwan, and it has accumulated investment amounting to about 29.2 billion U.S. dollars on the island, followed by the United States and Japan.

He adds that the island's geographic location, personnel training, infrastructure and similar language and culture with the mainland are all advantages that "can be leveraged when people consider setting up business here."

"One thing that was very successful in the past was the joint venture model between Taiwanese and European companies in Taiwan to do business on the mainland," he said.

As for investment advice, Dr. Chung-Teh Lee, a senior partner at Lee, Tsai & Partners, a Taipei-based law firm, said that investors should consider manufacturing products in Taiwan and exporting them to the mainland because the exports on the list of the "early harvest program" could enjoy tariff reductions or zero tariffs in two years.

Lee said that investors should also consider Taiwan as "a gateway to the mainland" in the medical sector. Because Taiwanese businesses are permitted to set up wholly-owned hospitals in booming mainland areas, including Shanghai, Shenzhen, Jiangsu, Fujian, Guangdong and Hainan, due to a cross-Strait medical cooperation agreement that was signed last December, he suggested that foreign investors look into Taiwan service providers who set up hospitals on the mainland.

For foreign film producers who covet the mainland' s lucrative film market, Lee suggested that foreign investors consider investing in Taiwan film production companies, since Taiwanese films are allowed to be distributed in the mainland without quota limitations.

The mainland has removed quota restrictions for Taiwan films since October 28, 2010 and allowed the island's filmmaking resources to compete freely in the mainland film market. Last year, the mainland box office generated more than 10 billion yuan (1.5 billion U.S. dollars), up about 50 percent from 2009.

Previously, Taiwan films had to compete with blockbusters from Hollywood and other overseas films to enter the mainland market, which has a quota limiting the number of imported films screened.